2017 (6) TMI 1116 - AT - Income Tax

Addition on capital contributed by partner of the firm - Held that - Partner having admitted that he has made the impugned deposit with the assessee firm out of the amount received as gift, it is the partner and not the firm who is liable to be taxed by treating the said amount as undisclosed income even if the claim of gift said to have been received by him is rejected. See Commissioner of Income-tax Versus Metal & Metals of India 2006 (11) TMI 630 - HIGH COURT OF PUNJAB & HARYANA . Thus delete the addition made in the hands of the assessee firm. Addition being unsecured loan raised by the firm from Smt. Anu Anand - Held that - Considering explanation of the assessee in the light of the order of the Division Bench of the Tribunal in the case of Shri Vivek Jolly (2012 (11) TMI 1216 - ITAT CHANDIGARH) explanation of the assessee is accepted that creditor has withdrawn the amount of ₹ 2 lacs and ₹ 5 lacs in February,2006 which were available to her for making re-deposit in the same bank account. The Assessing Officer has not brought any evidence on record to prove that the amounts so withdrawn by the creditor in February,2006 have been utilized or spent anywhere else. Therefore, explanation of the assessee is accepted that the creditor has credit worthiness to advance a sum of ₹ 5,01,750/- to the assessee. Therefore, no addition can be made of this amount treating the same to be unexplained credit. Accordingly, orders of the authorities below are set aside and addition of ₹ 5 lacs is deleted.

Summary

Issues:
1. Challenge to additions of capital contributions by partners.
2. Challenge to addition of unsecured loan raised from a creditor.

Analysis:
1. The appeal was against the additions made by the Assessing Officer and confirmed by the CIT(Appeals) regarding the capital contributions made by partners of the firm. The Assessing Officer treated the cash investments by the partners as unexplained and made additions to the income of the firm. However, the Tribunal found in favor of the assessee based on a previous order in a similar case where the High Court had ruled that if partners admit to advancing amounts to the firm, no addition can be made in the firm's hands. The Tribunal concluded that the addition in the hands of the firm was unjustified and deleted the same, allowing the appeal of the assessee.

2. Another issue raised in the appeal was the addition of an unsecured loan raised from a creditor. The Assessing Officer treated the source of the loan as unexplained and made an addition to the income of the firm. However, the Tribunal found that the creditor's creditworthiness was not in question as substantial amounts had been advanced by her in previous years without dispute. The Tribunal accepted the explanation provided by the assessee regarding the withdrawals and re-deposits made by the creditor, citing a similar case where such explanations were accepted. Consequently, the Tribunal set aside the orders of the authorities below and deleted the addition of the unsecured loan, allowing the ground of appeal raised by the assessee.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the additions made by the Assessing Officer and confirmed by the CIT(Appeals) regarding the capital contributions by partners and the unsecured loan raised from the creditor. The Tribunal found in favor of the assessee based on legal precedents and explanations provided, ultimately deleting the additions and ruling them as unjustified.